The Indian rupee plunged to a historic low of 96.14 against the US dollar on Thursday, before recovering slightly to settle at a fresh closing low of 95.86 per dollar. The currency has registered over 6 per cent losses so far this year, with the depreciation accelerating in recent sessions.
Sharp Decline in Six Sessions
In the past six trading sessions alone, the rupee has depreciated nearly 2 per cent. The sharp fall has been driven by escalating geopolitical tensions in the Middle East, particularly the risk of war between Iran and its adversaries, which has pushed crude oil prices sharply higher. Since India is a major importer of crude oil, rising oil prices put significant pressure on the rupee by widening the trade deficit and increasing demand for dollars.
Impact of Crude Oil Surge
Brent crude oil prices have surged over 10 per cent in the last two weeks amid fears of supply disruptions from the Strait of Hormuz. Higher oil prices not only increase India's import bill but also fuel inflationary pressures, which could force the Reserve Bank of India to take further measures. The central bank has been intervening in the forex market to curb volatility, but the relentless demand for dollars from importers and foreign investors has overwhelmed these efforts.
Market Sentiment and Outlook
Market participants remain cautious, with many expecting the rupee to test new lows if crude prices continue to rise. Foreign portfolio investors have been net sellers in Indian equities, adding to the dollar demand. The rupee's weakness also reflects a broader strength in the US dollar globally, as the Federal Reserve maintains a hawkish stance on interest rates. Analysts suggest that the rupee may find some support near the 96.50 level, but a sustained recovery is unlikely without a de-escalation in geopolitical tensions or a sharp drop in oil prices.
The rupee's record low comes amid a turbulent period for emerging market currencies, with many facing similar pressures from a strong dollar and rising commodity prices. The Indian government has assured that it is monitoring the situation closely and is prepared to take necessary steps to ensure stability in the forex market.
